Bloomberg 10/4/24
Traders are pricing in less than a quarter-point worth of interest-rate easing at the Federal Reserve’s November gathering after employment data offered evidence of a resilient US economy.
• Swaps traders are pricing in about 24.7 basis points of a rate cut at the Fed’s next meeting; they see about 56 basis points by the end of the year
• That marks a sharp pullback of expectations from before the jobs report, when traders had been pricing in about 33 basis points of easing for November — which had implied a solid chance of a larger, half-point reduction

New York Times 10/17/24
Policymakers who set interest rates for the 20 countries that use the euro have lowered rates in back-to-back meetings for the first time since 2011.
The European Central Bank cut interest rates on Thursday for the third time in about four months, as inflation in the eurozone has cooled faster than expected.
Policymakers who set interest rates for the 20 countries that use the euro lowered their key rate by a quarter point, to 3.25 percent. Thursday’s decision came just five weeks after a cut at the bank’s previous meeting, and on the day that a report showed the eurozone’s inflation rate slowing to 1.7 percent in September, falling below the bank’s 2 percent target for the first time in more than three years.
“The disinflationary process is well on track,” policymakers said in a statement.

Wall Street Journal 10/17/24
The Decision
The European Central Bank lowered interest rates for the second meeting in a row, speeding the pace of rate cuts to support an economy flashing increasing signs of weakness. The ECB said it would reduce its key interest rate to 3.25% from 3.5%. That widens a gap in benchmark borrowing costs with the Federal Reserve.

Reuters 10/1/24
Bank of Japan policymakers discussed the need to go slow in raising interest rates as jittery markets clouded the outlook, a summary of their September meeting showed, reducing the chance of a near-term rate hike.
The summary also showed how the U.S. Federal Reserve's decision to deliver an oversized reduction in borrowing costs, which came a day before the BOJ's Sept. 19-20 meeting, led to increased worries about the U.S. economic outlook.
"Uncertainties have heightened about the U.S. economy and the pace of rate cuts by the Fed. Attention needs to be paid to the possibility that these factors will have a negative impact on the yen's exchange rates and corporate profits in Japan," one member was quoted as saying.

Reuters 9/26/24
China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of a fresh fiscal stimulus, said two sources with knowledge of the matter, adding to a string of measures to battle strong deflationary pressures and faltering economic growth.
As part of the package, the Ministry of Finance (MOF) plans to issue 1 trillion yuan of special sovereign debt primarily to stimulate consumption amid growing concerns about a stuttering post-COVID economic recovery, said the sources.

(Bloomberg) 9/24/24-- Traders are growing increasingly confident the European Central Bank will cut interest rates again next month as evidence mounts the economy is weakening.
Money markets imply a roughly 60% chance of a quarter-point reduction in October, up from around 20% last week. The latest leg of the repricing was driven by US data that showed consumer confidence unexpectedly fell in September.
The ECB has lowered borrowing costs twice this year and at their last meeting said further reductions will depend on incoming data. Traders so far have largely taken the view that policymakers would cut rates once a quarter but that calculus is quickly changing as data points to a teetering economy — euro-area private sector activity contracted for the first time since March and Germany’s business outlook worsened again.

(Bloomberg) 9/27/24--
A gauge of economic confidence for the euro zone, meanwhile, edged lower — staying roughly where it’s been since December — driven lower by industry and retail. Consumer confidence did tick up, as did services.
After this morning’s data, markets boosted bets on another quarter-point reduction in rates on Oct. 17, now pricing about an 80% chance of such a scenario. Analysts at Goldman Sachs and BNP Paribas also shifted their calls for October to a cut, as did Bloomberg Economics.

(Bloomberg) -9/30/24- The 10-year German bond erased an earlier drop as European Central Bank President Christine Lagarde said policymakers are more confident that inflation is being brought under control, and will reflect on that at its October meeting.
• 10-year yield was little changed on the day at 2.13%; earlier rose as much 4bps
o Two-year yield yield fell 1bp to 2.07%
• Money markets price 22bps of cuts for October vs 20bps on Friday; equivalent to ~90% probability of a quarter-point move

Bloomberg 9/24/24
Australia’s central bank signaled it will
keep its key interest rate at a 12-year high in the near term as
it struggles with stubborn inflation that’s holding it back from
joining a global easing cycle.
“Based on what we know at the moment rates will remain on
hold for the time being,” Governor Michele Bullock told a press
conference in Sydney on Tuesday after keeping the cash rate at
4.35% for a seventh straight meeting. Still, the RBA isn’t
“ruling anything in or out” on policy, she said.
Unlike in August when policymakers put a rate rise on the
table, this time around a hike wasn’t “explicitly considered,”
Bullock told reporters, sending the currency and bond yields
lower.

Bloomberg 9/24/24
China’s central bank unveiled a broad
package of monetary stimulus measures to revive the world’s
second-largest economy, underscoring mounting alarm within Xi
Jinping’s government over slowing growth and depressed investor
confidence.
People’s Bank of China governor Pan Gongsheng cut a key
short-term interest rate and announced plans to reduce the
amount of money banks must hold in reserve to the lowest level
since at least 2018, appearing at a rare briefing alongside two
of the country’s other top financial regulators in Beijing. That
marked the first time reductions to both measures were revealed
on the same day since at least 2015.

BBG 9/19/24
The Bank of Japan kept policy unchanged Friday as it avoided a repetition of the market meltdown that followed its July rate hike, while still keeping the ground prepared for a ramping up of borrowing costs in the coming months.

The immediate market reaction was muted this time, with stocks maintaining their gains and only a relatively small strengthening of the yen after the BOJ met expectations by holding the unsecured overnight call rate at around 0.25%.

In a busy week for central banking that saw the Federal Reserve finally embark on rate cuts, the BOJ was expected to stand pat by all economists surveyed by Bloomberg.

A hold decision seemed almost certain given the need to monitor the impact of July’s rate increase and to avoid spooking markets again with a surprise. Standing pat also kept the bank out of the spotlight as Japan’s Liberal Democratic Party chooses a new leader to take on the role of prime minister.

The bank raised its assessment of consumer spending, a key engine of economic growth, and cited the need to monitor financial markets. Following another uptick in the inflation rate, it also reiterated that it expects price growth to continue in line with its goal in the latter half of its projection period.

“The BOJ is indicating it’s on track for another rate hike,” said Jin Kenzaki, head of Japan research at Societe Generale SA.

Washington Post 9/18/24
The Federal Reserve cut interest rates Wednesday by a half-point, turning the page on an era of dangerously high inflation and marking a major shift at the central bank that could bring relief for households and businesses alike.
The rate cut, announced at the end of the Fed's two-day policy meeting, marks the first time officials trimmed borrowing costs since the pandemic's early days. And while officials were practically guaranteed to cut rates this week, it was unclear how aggressively they were going to move.

FOMC Statement



The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.

In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

Bloomberg 9/18/24
Michelle Bowman cast the first dissenting vote by a Federal Reserve governor since 2005, preferring to cut rates by a smaller amount at Wednesday’s policy meeting.

BBG 9/18/24
*FED SEES RATES AT 4.4% AT END OF 2024, 3.4% IN 2025
*TEN OFFICIALS PENCILED IN 100 BPS OR MORE OF CUTS FOR 2024

9/18/24 Powell: A lot of questions there. Let me jump in. So since the last meeting, okay, the last meeting we have had a lot of data come in. We had the two employment reports, July and August. We also had two inflation reports including one that came in during blackout. We had the QCEW report that surges that maybe -- not maybe but suggests the payroll report numbers that we're getting maybe artificially high and will be revised down. You know that. We have also seen anecdotal data like the beige book. We took all of those and we went into blackout and we thought about what to do and we concluded this was a right thing for the economy for the people that we serve and that's how we made our decision.

Lagarde Signals ECB Open to October Cut But December More Likely (9/13/24)

The European Central Bank is open to
considering an interest-rate cut in October if the economy
suffers a major setback — though the next comprehensive set of
information will only be available at the following meeting,
President Christine Lagarde said.
Her remarks, less than a day after the ECB delivered its
second quarter-point reduction in the deposit rate since June,
offer the clearest signal yet that policymakers are leaning
toward waiting until December for their next move.
But they’ve vowed to be data dependent and decline to rule
out acting already next months. People familiar with their
thinking have said it would take a more significant
deterioration in the growth outlook or aggressive easing by the
Federal Reserve to depart from the quarterly pace of rate-
cutting.

Federal Reserve delivers super-sized half-point rate cut
Axios 9/18/24
The Federal Reserve cut its target interest rate Wednesday by an extra-large half percentage point, and projected more rate cuts this year and next, as its period of trying to put brakes on the economy to fight inflation comes to a close.
The rate cut reflects the U.S. entering a new phase where the softening job market is the predominant economic risk rather than elevated inflation.
By going with an aggressive half-point cut instead of its more traditional quarter-point adjustment, the Fed moved to get ahead of some evident faltering in the job market.

BBG 9/19/24
The Monetary Policy Committee voted 8-1 to keep rates
steady at 5%, an outcome whose caution contrasts with the half-
point reduction delivered in the US on the eve of the UK
announcement on Thursday. That was in line with the expectations
of economists and markets.
“We should be able to reduce rates gradually over time,”
Governor Andrew Bailey said in a statement, stressing that such
a path would depend on price pressures continuing to ease. “It’s
vital that inflation stays low, so we need to be careful not to
cut too fast or by too much.”
The panel also maintained the £100 billion ($132 billion) a
year pace of its balance sheet run-off, in a unanimous decision
on quantitative tightening.

Monetary policy decisions (12 September 2024)

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

ECB press conference response
we can all count, it is six weeks before October 17, which is a relatively short period of time compared to other intervals that we've had in the past. I would simply repeat what I have said. We are going to be data dependent. We are going to decide meeting by meeting. I'm not giving you any commitment of any kind as far as that particular date is concerned. And our part is not predetermined at all

The Fed's Rate-Cut Dilemma: Start Big or Small? -- WSJ
By Nick Timiraos
Federal Reserve Chair Jerome Powell faces a difficult decision as the central bank prepares to cut interest rates next week: Start small or begin big?
The central bank is set to reduce rates for the first time since 2020 at its meeting on Sept. 17-18. Because officials have signaled greater confidence that they can make multiple rate cuts over the next several months, they are confronting questions over whether to cut by a traditional 0.25 percentage point or by a larger 0.5 point.
Powell kept all his options on the table in a speech last month in Jackson Hole, Wyo., that surprised some of his colleagues with its unambiguous call to turn attention to incipient risks in the jobs market. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks," he said then.
Officials last year raised their benchmark rate to around 5.3%, a two-decade high, and will have held it at that level for the last 14 months to combat inflation, which has declined notably.
They are nervous about keeping interest rates too high for too long amid evidence that higher borrowing costs are working as intended to slow inflation by cooling spending, investment and hiring. They don't want to let slip through their grasp a soft landing, in which inflation falls without a serious jump in joblessness.

Wall Street Journal 9/18/24
The Federal Reserve voted to lower interest rates by a half percentage point, opting for a bolder start in making its first reduction since 2020. The long-anticipated pivot followed an all-out fight against inflation the central bank launched two years ago.
Eleven of 12 Fed voters backed the cut, which will bring the benchmark federal-funds rate to a range between 4.75% and 5%. Quarterly projections released Wednesday showed a narrow majority of officials penciled in cuts that would lower rates by at least a quarter point each at meetings in November and December.

Bloomberg 10/23/24
The Bank of Canada stepped up the pace of interest-rate cuts and signaled that the post-pandemic era of high inflation is over.
Policymakers led by Governor Tiff Macklem lowered the benchmark overnight rate to 3.75% on Wednesday, the biggest reduction in borrowing costs since March 2020 during the early days of the pandemic.
The 50 basis-point cut suggests a new phase of monetary policy easing, where policymakers focus on returning interest rates to more neutral levels -- where borrowing costs neither restrict nor stimulate growth -- to avoid slowing the economy too much and having inflation undershoot the target.

FRANKFURT Reuters 9/2/24
European Central Bank policymakers are increasingly at odds on the outlook for growth, a rift that could shape the rate cut debate for months with some fearing a recession and others focusing on lingering inflation pressures, sources

Policy doves, who remain in the minority, argue the economy is weaker than thought, recession risks are on the rise and firms that have hoarded labour are starting to cut vacancies, leaving the jobs market softer.

Once employment declines, so does disposable income, quickly eroding consumption and leaving a self-reinforcing downturn.

"This would weaken price pressures quicker than we now forecast, so I think the risk of returning to below-target inflation is real," one of the sources, who asked not to be named, said.

This would suggest the central bank is behind the curve in cutting interest rates and buffering the economy, supporting the case for quicker interest rate cuts, they say.

Inflation, down to 2.2% in August, is now forecast to rise again towards the end of the year and coming back to 2% only in late 2025.

RECESSION?

Conservatives, or hawks in central banking parlance, who have dominated the policy debate since the start of rapid rate hikes in 2022, argue that actual growth figures persistently outperform weak survey results and the economy is holding up.

Consumption is robust, the bloc just enjoyed a superb tourism season and construction is finally rebounding, so growth remains respectable.

Moreover, wage growth remains far above levels consistent with a 2% inflation target, so real incomes are rebounding quickly and should continue to insulate the economy.

While industry is in a deep downturn and could drag Germany into a recession, this is more a structural issue that could take years to resolve, so monetary policy has little role, many of the sources said.

All this builds the case for slow rate cuts, perhaps one every quarter, until the ECB is certain inflation is heading back to 2%.

Hawks are also likely to fight any policy easing that would push into 2026 the date the inflation target is met, since that could jeopardize the ECB's credibility, the sources said.

ECB board member Isabel Schnabel, a prominent policy conservative, argues that inflation concerns should trump growth.

"Monetary policy should remain focused on bringing inflation back to our target in a timely manner," she said in a speech on Friday. "While risks to growth have increased, a soft landing still looks more likely than a recession."

OCTOBER

The rift is unlikely to impact September's policy decision since there is already widespread consensus to cut rates, the sources said.

But it could affect how ECB President Christine Lagarde communicates the decision, shifting expectations for the October meeting.

The bank is unlikely to discard its "meeting by meeting" approach to setting policy so there will be no commitment about October, but doves want Lagarde to highlight growth risks and signal that back-to-back cuts are not excluded.

Hawks fear such a message would heighten market expectations too much, putting the ECB in a bind. Investors already see a 40% to 50% chance of an October cut and such a dovish message would only firm up those bets.

"I think quarterly cuts serve us well and the data just don't support picking up this pace," a third source said.

Bloomberg 9/3/24
Bank of Japan Governor Kazuo Ueda reiterated
Tuesday that the central bank will continue to raise interest
rates if the economy and prices perform as expected by the BOJ,
a comment that supported further gains in the yen.
Ueda made the remark in a document submitted to a
government panel chaired by outgoing Prime Minister Fumio
Kishida in which he explained the BOJ’s July policy decision.
The yen firmed against the dollar following the release of
the comment, adding to gains for the day as Japan’s currency
bucked a weakening trend among G-10 currencies. The yen
continued to gain ground to briefly reach 145.61 at around 5:36
p.m. in Tokyo.
The comments served to remind market players that despite
the meltdown in global markets that was partly triggered by the
BOJ’s July rate hike, Ueda remains committed to raising
borrowing costs provided the bank’s forecasts materialize.

Bloomberg 8/29/24
Employment gauges in a fresh batch of
regional Federal Reserve bank surveys are emblematic of the
risks to the US job market prompting the central bank’s turn
toward interest-rate reductions.
August indexes in each of the five recently released
regional manufacturing reports show shrinking payrolls at
factories, and gauges of employment at service providers are
settling back. Measures of hours worked are also slipping.
The surveys are more a measure of industry sentiment rather
than actual changes in employment. Still, in the wake of
disappointing July job growth and separate data showing a huge
downward revision in the level of March payrolls, they offer
anecdotes of a moderation in the labor market that Fed Chair
Jerome Powell indicated is front and center for policymakers.